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FSA/PN/083/2008
30 July 2008

The Financial Services Authority (FSA) has fined Liverpool Victoria Banking Services Limited (LVBS) £840,000 for serious failings in the sale of single premium Payment Protection Insurance (PPI). The penalty was imposed for failings in relation to PPI offered to customers who telephoned LVBS seeking unsecured personal loans between 14 January 2005 and 8 August 2007.

When customers rang LVBS to apply for a personal loan, LVBS added the cost of PPI to the quotation without the customer asking for it. If customers realised they did not have to buy the cover and objected to it, LVBS put pressure on them to take the PPI. When speaking to customers LVBS did not explain that the cost of the single premium PPI was added to the loan and that as a result customers paid additional interest on the PPI premium for the life of the loan. LVBS also provided inadequate information to its telephone customers about the features, exclusions and limitations of PPI and often provided information that was unclear, unfair or misleading. In 97 sales calls reviewed, the FSA found over 60% to be non-compliant.

FSA Director of Enforcement Margaret Cole said:

"When customers phone for a quote, it is totally unacceptable for firms to add on the cost of insurance which the customer has not asked for. Many customers make their decisions when speaking to sales staff. If those conversations are unclear or misleading it will be no defence for firms to say that full details were included in paperwork which customers received later. We have made it abundantly clear that firms must ensure their PPI sales processes are up to the required standards and must change their behaviour where necessary.

"The LVBS sales process was flawed in its design. The firm has stopped all sales of PPI and is now proposing a comprehensive programme to contact its customers and pay them compensation where appropriate. The FSA expects firms to treat customers fairly, particularly when failings have been identified. This proposal for remedial action sets an example for other firms to follow."

As part of the redress package agreed by LVBS, the interest paid on the PPI premium will be refunded automatically, without the customers having to write to the firm and make a claim. The firm will be writing to its PPI customers asking them to review the terms of their PPI policy and offering to pay full redress where appropriate. LVBS agreed to extend the scope of its redress proposals to include a review of all PPI offered via telephone, internet or post between 14 January 2005 and 31 January 2008. This remedial action has been taken into account by the FSA and has significantly reduced the level of penalty which would otherwise have been imposed on the firm.

In addition, LVBS qualified for a 30% reduction in penalty by settling at an early stage of the FSA's investigation. Were it not for this discount, the FSA would have sought to impose a financial penalty of £1.2 million.

Notes for editors

1. The full text of the Final Notice for LVBS includes the background to the case, the regulatory requirements contravened and the factors taken into account when settling the level of the fine.
2. LVBS is a private limited company which has been authorised by the FSA to perform a number of regulated activities since 1 December 2001. In addition, it has been authorised to carry on regulated insurance business since 14 January 2005.
3. Between 14 January 2005 and 8 August 2007, LVBS sold approximately 14,500 PPI policies on a non-advised basis at an estimated average cost of £1,600 including interest.
4. The FSA has previously fined seven firms over poor PPI selling practices: HFC Bank £1.085 million, Regency Mortgage Corporation Limited £56,000, Loans.co.uk £455,000, Redcats (Brands) Limited £270,000, GE Capital Bank £610,000, Capital One Bank (Europe) Plc £175,000 and Land of Leather £210,000 - and has imposed a public censure on Eastern Western Motor Group Limited and Cathedral Motor Company Limited. Three other cases have been concluded where problems relating to PPI also featured - Capital Mortgage Connections Limited £17,500, Home and County Mortgages Limited £52,500 and Hadenglen Home Finance Plc (£133,000 for the firm and £49,000 for its chief executive).
5. The FSA's thematic work on the sale of PPI published in September 2007 found improvements in some areas, but also that many firms selling this insurance were still failing to treat their customers fairly. The FSA introduced additional rules in its Insurance Conduct of Business Rulebook in January 2008 designed to improve PPI selling practices. The FSA has conducted further follow-up thematic work on PPI this year and the findings of this are due to be published in the autumn.
6. To help consumers make informed decisions, the FSA's consumer pages - Moneymadeclear - includes questions that people should ask themselves before taking out PPI and a new comparative information table for PPI.
7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.